Working Papers

1. Working Paper

   The Real Effects of Antitrust Enforcement on Corporate Decisions: Evidence from the Courts

   Lawrence Zhao

   Working Paper 2023

   Abs PDF

   I investigate the real effects of antitrust policies on corporate acquisitions, investment, and innovation. I use plausibly exogenous variations in judges’ propensity to dismiss antitrust cases as an instrument for endogenous exposure to antitrust enforcement. The evidence indicates that antitrust enforcement imposes behavioral constraints on firms. Specifically, defendant firms that go through antitrust litigation experience a significant decrease in future acquisitions, especially among serial acquirers. The adverse effect is economically large but transitory, disappearing after two years. Defendant firms substitute acquisitions with internal investment, resulting in no change in patent outputs. My findings highlight the importance of vigorous and continuous antitrust enforcement.

2. Working Paper

   Out of Sight, Out of Mind: Search Frictions and Financial Adviser Misconduct

   Lawrence Zhao

   Working Paper 2023

   Abs PDF

   I examine the impact of FINRA’s national advertising campaign promoting BrokerCheck, a free online tool that discloses disciplinary actions against financial advisers. Using a difference-in-differences approach, I demonstrate that the campaign increased clients’ awareness of their advisers’ past misconduct records. As a result, exposed advisers experienced a significant 9% abnormal decrease in assets under management. Advisers who primarily served less sophisticated clients experienced more severe adverse effects. Clients switched to advisers with clean records. In response, advisers increasingly disciplined employees who engaged in misconduct. These findings highlight the importance of addressing search frictions in combating financial adviser misconduct and improving market efficiency.

3. Working Paper

   Government Litigation Risk and the Decline in Low-Income Mortgage Lending

   Scott Frame, Kristopher Gerardi, Erik Mayer, Billy Xu,  and Lawrence Zhao

   Revise & Resubmit, Journal of Financial Economics 2025

   Abs PDF

   We study the effect of Department of Justice lawsuits in the 2010s against large lenders for alleged fraud in the Federal Housing Administration (FHA) mortgage insurance program. The suits led to over $5 billion in settlements and caused targeted banks and their peers to precipitously exit the FHA market. Difference-in-differences and triple differences tests exploiting geographic variation in exposure to exiting banks show a 20% reduction in FHA lending in heavily exposed areas. This reduction was not associated with improved underwriting standards or lower default rates. Large banks’ FHA exit has significantly reduced low-income households’ overall access to mortgage credit.

Select Work in Progress

1. Work in Progress

   Underwriter Competition and Rent Extraction

   Gustavo Grullon,  and Lawrence Zhao

   Work in Progress 2022